2020 (7) TMI 600 - AT - Income Tax

Bogus purchases - CIT-A restricting the disallowance to the extent of 12.5% - HELD THAT - The assessee has categorically stated that the purchases were made in the form of Diary for distribution to the customers. At the worst it may be a case of inflating expenses. The assessing officer has not verified and examined the fact that the diaries were distributed on not. CIT(A) after considering the contention of assessee restricted the addition to the extent of 12.5% of the alleged bogus purchases by following the decision in CIT vs. Simith P. Sheth 2013 (10) TMI 1028 - GUJARAT HIGH COURT . - despite furnishing sufficient evidence in the form of ledger accounts and payment through banking channel, the AO ny adverse material against the assessee. CIT(A) has brought the element avoidance of VAT and other charges to tax, embedded in such bogus purchases. Considering the peculiar facts of the present case, we do not find any infirmity in the order passed by ld CIT(A),which we affirmed. - Decided against revenue.

Summary

Issues: Reopening of assessment based on information received, disallowance of purchases as bogus, restriction of addition to 12.5% by CIT(A), adequacy of evidence provided by assessee, applicability of VAT and other charges.

Analysis:
1. The appeal by the revenue was against the order of the Commissioner of Income-tax Appeals for Assessment Year 2010-11. The case involved the reassessment of the assessee, a company engaged in the publication of educational books, due to information received regarding certain dealers providing accommodation entries without actual delivery of goods, with the assessee being a beneficiary. The Assessing Officer disallowed purchases from a specific company as bogus based on various decisions of higher courts.

2. The CIT(A) restricted the addition to 12.5% of the purchases, citing a decision of the Gujarat High Court. The revenue's main ground of appeal was the restriction of the disallowance. The revenue argued that the entire purchases should be disallowed as the assessee failed to prove their genuineness, while the assessee contended that the purchases were for distributing diaries to customers and provided evidence of payments and ledger accounts.

3. The Tribunal noted that the Assessing Officer did not refer to the assessee's reply or conduct an independent investigation. Despite the assessee providing evidence of payments through banking channels and ledger accounts, the Assessing Officer did not present any adverse material. The Tribunal found no infirmity in the CIT(A)'s decision to restrict the addition to 12.5% of the alleged bogus purchases, considering the element of avoidance of VAT and other charges embedded in such purchases.

4. Ultimately, the Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s order. The Tribunal found that the assessing officer did not adequately verify whether the diaries were actually distributed, and the CIT(A) appropriately considered the evidence provided by the assessee in reaching the decision to restrict the addition. The order was pronounced in open court on 21/07/2020.